JPMorgan Ultra-Short Income ETF (JPST)

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On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the JPMorgan Ultra-Short Income ETF (JPST) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth. He’s the head of research at VettaFi. And if you go VettaFi.com, you will find all the tools and research you need to be a savvier, smarter ETF investor. And you can get all the details on the new, newsworthy, trending, and timely ETFs that we talk about here.

Todd Rosenbluth, it’s great to chat with you again.

Todd Rosenbluth: It’s my pleasure, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The JPMorgan Ultra-Short Income ETF. JPST.

Chuck Jaffe: JPST. The JPMorgan Ultra-Short Income ETF. Now, Todd, we can make an assumption here that this is somehow tied to what’s going on with interest rates and the rest. But the truth is, when we’re talking about ultra-short income funds, quite honestly, “Guys, that was boring.” It’s hard to make this exciting. So, why is JPST exciting enough to be the ETF of the Week right now?

Todd Rosenbluth: So, you’re right about the timing of this, because we’ve recently heard confirmation — long overdue — that the Fed is going to begin its rate cutting cycle in September. And so, as we’re recording this, that’s about to happen in the coming weeks. That’s likely to be the first of many rate cuts. We think it’s going to encourage many investors to take some of the cash they’ve parked on the sideline and move it where they can earn a little bit more. A little bit more income, a little bit more total return potential, and work with an experienced management team at JPMorgan in order to do so.

But yes, it’s the summer! So, it’s OK that we’re being a little bit boring with our picks because we’re doing this week after week.

Chuck Jaffe: Yes, but boring in this case is also tactical. I mean, this is not just kind of parking it and treating it like a money market fund. This is putting your money to work here. Juicing your yield just a little bit, while you wait to see how things play out. As the rate cycle turns, right?

Todd Rosenbluth: Yes. So JPST is putting money more closely to work. Again, you’re right. This is not a money market fund. So, with a money market fund, you expect the net asset value to be stable over that period of time, and you’re just going to get the income. What you’re getting with JPST is you’re getting the income. The yield is over 5% right now.

But as the Fed cuts interest rates, the return is likely, and in fact will go up, as the bond yields come down. That that’s just the way that the bond math works. And we think an active management capability from the JPMorgan team gives you a leg up over the money market funds that you might have been sitting in on the sidelines before.

Chuck Jaffe: But active management in this fund. Well, again, a leg up over money market funds. But why? Active management for a short-term fund, as opposed to using an index fund? Because we are talking about it as vanilla a fund as there is.

Todd Rosenbluth: Well, it’s not that vanilla, because instead of owning Treasury bills, which is what you would expect with an ultra-short bond ETF. State Street, or iShares, Vanguard have those as well. They only own Treasury bonds. With these actively managed ultra-short bond ETFs like JPST, you get some of that exposure. But you get management’s best ideas with limited duration.

That often involves investment-grade corporate bonds, but involves agencies. It involves other tools within the toolbox that an experienced team from JP Morgan can take advantage of. So, you’re getting a little bit more than what you would get if you owned just a Treasury bond product.

Chuck Jaffe: You talked about JPMorgan’s experience. This is the 800 pound gorilla of ultra-short income ETFs. This is far and away the biggest one. Although JP Morgan runs a couple of others that are certainly in the same company. But, if you’re looking for active management to make a difference, because this is a pretty limited scope of what an active manager can do, wouldn’t you want the smaller guy in this? Because they can be more nimble?

Todd Rosenbluth: Well, the bond market is pretty big, Chuck, so it’s quite liquid. You can get access to thousands of bonds to be able to build up or consider to build a portfolio and then sort through that universe. What you get with a larger product, and with a firm like JPMorgan or some of the other established asset managers in this space, is all of their experience in sorting through that universe. Sorting through all of those investment-grade credits to figure out which bonds are going to be capital preservation vehicles, but offer a little bit more in terms of income than you might get by focusing on Treasuries.

So, a smaller firm won’t be able to access the same bonds that a larger or smaller bond fund won’t be able to do. And a firm that’s a newer entrant into the space might not have that same capabilities. And you’re right, this is a four-star managed fund from James McNerny and team at JP Morgan. Strong track record overall in this space. We think they’re a good firm to be considering working with in the ultra-short category.

Chuck Jaffe: If somebody is already working with another firm in the short-term income fund category, is there much benefit to diversification? Like, if somebody hears this and goes, OK, he’s telling me to make a tactical play toward short-term income. Maybe I want to take some of my long-bond money and move in this direction for a little while, etc. Well, they’re getting that side of advice, but if they already have a short-term income fund, is there much benefit to diversifying and adding this?

Todd Rosenbluth: Probably not as much as you would in the normal investment category. So if you’re looking for two large-cap funds, you might want to have them. They’d be different.

Most of the funds are going to have duration of around half a year, maybe a little bit less, a little bit more. In the ultra-short category, you’re going to get slight differences is in terms of the fees and the returns, based on the risk and reward that they’re taking on. You just want to make sure you’re working with the right firm. So, is this an alternative to what you already have? It might be. It certainly is an alternative to what you have if it’s index-based, or it’s a money market fund and you’re not fully appreciating the macro environment that we’re heading into.

Chuck Jaffe: Obviously, we’re looking at the first rate cut in the rate cut cycle. And I’m sure you and I aren’t going to be finished today talking about income funds as we get into the rate cut cycle. But, is the expectation when you do this that you’re going to be in this while we see rates come down? Or is this a case of you wait to see how the first cut or two play out, and then you start getting fancy?

I mean, how long is an allocation? Because this is not the trend-following question. Because you’re not the trend-following guy. You’re talking about making a tactical allocation. And so, at what point do you say, I want these tactics. But now that rate cutting is not starting, it’s continuing. Is there a point you change?

Todd Rosenbluth: I think with any strategy you want to revisit after a three- to six-month time period and make sure your allocation still makes sense. We expect that there’s going to be the beginning of a rate cycle. If you if you were to move into this fund, JPST, you might want to revisit that at the end of the year and make sure the macro environment still makes sense, relative to taking on even more duration risk if the cycle is, or it’s likely to be more prolonged.

But you’re right, this is the first of many. It’s just how fast the Fed is going to move. And when does it happen in 2025?

Chuck Jaffe: And that’s why JPST, the JPMorgan Ultra-Short Income ETF is the ETF of the Week now as the rate cycle is kind of heating up. And it’s the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff as always. Thanks so much for joining me.

Todd Rosenbluth: I’ll see you, and go blue. Chuck!

Chuck Jaffe: Go blue, absolutely! The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I am Chuck Jaffe. And you can learn all about my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find your favorite podcasts.

Now, if you’re searching for information on your favorite ETFs, or the ones you’re hoping might be your favorites, look no further than VettaFi.com. They have all the tools you need to be a better investor. They’re on X, or what used to be called Twitter, at @Vetta_Fi.

Todd Rosenbluth, their head of research, my guest, he’s there too. He’s at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by following along on your favorite podcast app. We’ll introduce you to another great ETF next week. Until then, happy investing, everybody!

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